Reaffirming Your Oklahoma Home Loan.
Video Transcribed: Edward Kelley 888 Debtline, answering your bankruptcy questions. And today we’re going to take a quick look at, should I reaffirm my house in a chapter seven bankruptcy? So for a lot of debtors, they’ve got two things going into a bankruptcy, their home and their vehicle, that they’re worried about losing or deciding whether to keep.
So let’s say you’ve got a house, got a little bit of equity in it, fully intend to keep it, you’re not in foreclosure. Because if you are, then you’re going to need a chapter 13 to stop that. If you’re a month or two behind, you would need to catch that up before the bankruptcy, would be my advice, as chapter seven doesn’t afford you away to catch it up.
But let’s assume you’re caught up. You file a chapter seven bankruptcy. What happens? Well notice goes out to your mortgage holder and any second mortgage holders of your bankruptcy. So they then often will no longer accept payments from you. Technically, they probably shouldn’t because the automatic stay goes into effect. We’ve talked about that before. That’s a powerful tool of bankruptcy. That is an absolute bar from any creditors collecting directly from you.
They now have to go to the trustee. You can think of it as the trustee essentially steps in as you as to all your property. So if you’re current on the mortgage and you continue to make payments, then you’re not in danger of losing your house. Although, there are some mortgage holders who don’t understand the rules and may freak out, for lack of a better term. As long as you keep making the payments, you should be all right. And all the big mortgage holders understand how that works. They have bankruptcy departments.
And what will happen often is the mortgage lender will send you what’s called a reaffirmation agreement. So reaffirmation agreement basically is a new contract that survives the bankruptcy, and it has to be filed in the bankruptcy generally within 60 days of your 341 creditor meeting. So and after that it becomes barred. That’s not so important in the home mortgage, but it comes very important in cars,So the law is pretty clear that, when it comes to real property as opposed to personal property, real property meaning land, home, those kinds of things, as opposed to vehicles, trailers, et cetera.
When it comes to real property, if you don’t sign the reaffirmation agreement, that does not mean that the mortgage holder can suddenly take your property. What a mortgage holder can do, if you’re behind or if there’s some other reason that you have defaulted on the loan, within the chapter seven bankruptcy, can file a motion through their attorney called a motion to abandon and/or a motion to lift the automatic stay. If they’re going to abandon they need to do a motion to live the stay.
The automatic stay goes away, then they can proceed as if there was no bankruptcy. A motion to abandon refers to the trustee abandoning their interest in your home, which then means they can go after it and they’re not going after the trustee. They’re going after you.
Now, in real property, the same foreclosure rules of your state will apply, even if there is a motion to lift the stay. So basically, if you were in foreclosure and there was a sheriff sale scheduled, then they can go back and schedule another one. However, if they’ve just filed a petition or just served you, they go back to that point.
But again, if you’re current, even if you don’t sign the reaffirmation agreement, this is somewhat guided by the state laws of foreclosure and you are state, but for all intents and purposes, you continue as if you were still under the original mortgage contract. So there can be benefits to not signing it. You sign the reaffirmation agreement, you’re reassuring the debt personally.
So that means there’s a double protection for the mortgage holder. One, they’ve got the property, which they’re always going to have their a secured creditor. So whether or not you sign the reaffirmation, they still have their interest in the collateral that they can foreclose on if you default. However, if you sign the reaffirmation agreement, you’re back to where you were before the bankruptcy, meaning you’re also personally liable.
So lots of people come into bankruptcies with homes that have been foreclosed, auctioned for much less than what was owed, and then the balance is then charged as an unsecured debt and often sued against, against the mortgage holder who lost the home. So you can lose your home and still owe many, many thousands of dollars, as many of you I’m sure know.
If you don’t reaffirm the debt, then your personal liability is discharged. So that’s the benefit of not signing the reaffirmation agreement. They still have to go through the same foreclosure process and you’re not personally liable on the debt. Now, there may be reasons, moral reasons, you want to sign the reaffirmation agreement.
There may be other loans or accounts or things with that bank that might be effected by your treatment of that loan. Although, the creditor has to be very careful about that. But just understand this, when it comes to real property, the creditor cannot suddenly take it from you because you didn’t sign a reaffirmation agreement. They basically have to go through the same steps.
So not signing it will forever discharge your personal liability. And then if they do foreclose years later, they can only proceed with a lawsuit called an in rem foreclosure, which in rem refers to only as to the property. They can still take your house, auction it, and sell it. They cannot come after you for the difference because your personal liability has been extinguished. So hopefully this makes sense. As always, if you have any questions, feel free to email me at email@example.com.